www.pwc.com/mifid MiFID II: Getting it right the first time Optimising and managing regulatory change Understanding the opportunities and threats posed by significant market reforms
Are you getting ready yet? The revised Markets in Financial Instruments regime (MiFID II) will be burdensome for all those operating in the European securities markets but also presents significant opportunities. With over two years to prepare and many details still not in place, the temptation is to wait. But this is ill-advised. Waiting may lose you first mover advantage in key strategic areas. Waiting will also significantly increase your costs. The new regime will impact all areas of your business. It warrants a major change programme. However, MiFID II is no isolated change. By addressing MiFID II as a standalone compliance exercise, you ll get sub-optimal outcomes, including sub-optimal compliance. It should be put into context with all the other key regulatory changes in the European Union, focussing on investor protection, market integrity and market infrastructure. Why is MiFID II so important? MiFID II will drive fundamental changes in the European securities markets, in parallel with developments underway in the United States and globally. MiFID II, while addressing the problems of data and market fragmentation created by the original MiFID Directive, takes on board many lessons from the financial crisis. Investor protection measures will be substantially improved. All markets will become much more transparent and all forms of trading venue subject to regulation. The new rules take account of recent technology-driven market changes and look to future-proof the regime. Most market participants will face enhanced supervision and requirements with exemptions from the regime significantly reduced. And even exempted participants will not be totally immune to all the new rules. While MiFID transparency requirements focussed primarily on shares, MiFID II extends these to all forms of equity-like instruments and introduces analogous requirements for fixed income and derivative products. It will be supplemented and reinforced by other regulatory changes, such as the regulations on OTC, central counterparties, and trade repositories (EMIR) and on central securities depositories (CSDR), together with revisions of the Market Abuse Directive. Its investor protection measures are also complemented by a number of other legislative changes. This is no compliance exercise it will change your business and the markets 2 PwC
Who will be impacted? Anyone operating in the securities markets in whatever capacity will be affected. The impact in terms of time, effort and associated costs will vary but no-one escapes entirely. The list includes: Broker dealers (sales and trading); Investment banks and corporate finance houses; How will MiFID II impact your business? MiFID II will have a significant impact across the whole securities value chain, from front-office sales and trading, through to back-office and all points in between. The way you interact with your clients and other market participants will change radically. Market infrastructure providers (e.g. trading platforms, data aggregators/ disseminators); Buy-side firms (institutional investors) and other market users (including SMEs); Wealth management firms; Custodians; and Energy and other commodities players. Figure 1: Extensive impact on your business Business strategy Trading facilities Algorithmic trading and HFT Execution-only trading Crossing systems, dark pools Market data access and provision Equity (and equitylike) business Non-equity business Financial and commodity derivatives Trade internalisation SME and retail business Change management programme (Communication, training, PMO) Governance arrangements Processes, policies and procedures Systems/ technology Management body composition/responsibilities HR policies/practices eg. remuneration/whistleblowing Client take-on/ categorisation Client assets Operation of MTFs/ OTFs Systematic internalisation Transaction Compliance, risk, internal audit & internal controls Algorithmic trading, HFT, DEA Pre- and post-trade transparency Transaction Execution-only business Internal /escalation Systems architecture for MTFs/OTFs Independent vs non-independent advice Portfolio management Conflicts of interest/ inducements Target markets/ product approval Market access Target markets/product approval & oversight Regulatory / relations Suitability/ appropriateness tests Best execution Client information/ Distribution channels Position limits Shareholder value/ market data Investment policies Underwriting and placing Structured deposits OTC derivatives Emissions trading Client take-on/ Algorithmic trading OTC derivatives trading Pre and post trade transparency Telephone order recording Record-keeping Source: PwC PwC 3
What are the MiFID II timelines? The final text was published in the Official Journal on 12 June 2014 and entered into force on 2 July 2014. The regime both the Directive and the Regulation will apply from 3 January 2017. Member States will have 2 years to transpose the Directive into national law (the Regulation is automatically binding on Member States but there may still be some adjustments required at the national level to ensure that it is implemented properly). All level 2 measures over 100 of them need to be drafted and endorsed, as appropriate, ideally within 2 years (i.e. at least six months before the application date). Figure 2: MiFID II Timeline Figure 2: MiFID II Timeline 2014 2015 2016 2017 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 LEVEL 1 Political agreement 14/1/2014 Entry into force: 2 July 2014 EP vote 15/4/2014 Council adoption 13/05/2014 OJ publication (12/06/2014) Transposition period Application period LEVEL 2 EC mandate 23/4/2014 ESMA technical advice Consultation paper 22/5/2014-1/8/2014 Submission: 3 January 2015 ESMA draft regulatory technical standards Discussion paper 22/5/2014-1/8/2014 EC prepares delegated acts Consultation paper EC adopts 3 July 2015 Submission: 3 July 2015 No objection period* EC endorses* No objection period* Endorsement: 3 October 2015 Publication in OJ at the latest by 3 January 2016 Application: 3 January 2017 ESMA draft implementing technical standards EC endorses* Discussion paper 22/5/2014-1/8/2014 Consultation paper? Submission: 3 January 2016 LEVEL 3 ESMA prepares guidelines National transposition Finalisation: 3 January 2016** 3 July 2016 *Possibility of extension * Possibility of extension ** Not all guidelines have to be prepared by 2 January 2016. ESMA will supplement its Source: ** Not all PwC guidelines have to be prepared by 3 January 2016. ESMA will supplement its guidelines with Q&A. guidelines with Q&A. Source: PwC 4 PwC
What should you be doing today? Although we have to wait for the detailed implementing measures, with the adoption of the Level 1 text and the publication of the ESMA consultation and discussion papers, the general orientations of the reform are clear and you can start to get to grips with it now. Over the coming months, you should consider MiFID II in light of the following: Strategy: identify any business threats and strategic opportunities Revenue impacts: determine revenue/business structure impacts. Governance: establish an internal framework to co-ordinate initial activity and get the right people involved. High level planning: gauge key timings and must do now activities plus preliminary IT budgeting. Regulatory priority: look for inter-dependencies with other regulatory changes to prioritise key work-streams and identify implementation efficiencies. Public policy: link business impact analyses into public/lobbying policy on implementing measures. Education: deliver knowledge of the changing landscape early across your organisation. Figure 3: Two key phases to MiFID II implementation Analyse and Design Phase I Implementation Phase II Strategy/competition/ business models Client categorisation/ target markets Capital markets operations/technology Phase I Identification of regulatory changes introduced by MiFID II/MiFIR Project approach Market and supervisory Product design & manufacture Distribution strategies Management Board/ Compliance Conflicts of interest Phase 2a: Identification of existing regulatory gaps Phase 2b: Identifying possible opportunities arising from new requirements Define technical requirements Adapt processes and systems Go-live Deliver training Testing Start MiFID II Client information Record-keeping Phase 3: Regulatory update Design appropriate implementation measures Operations/technology Project management Source: PwC PwC 5
PwC can help We can mobilise the broad range of expertise that you are going to need to tackle MiFID II, and can support you along its full implementation spectrum, throughout Europe and more widely. We have wide experience with MiFID, having helped a range of financial firms implement the original regime, and have worked on subsequent upgrades instigated nationally or through the introduction of ESMA guidelines. We are well-versed in conducting major, geographically diverse, change programmes. We can also provide you with access to tried and tested methodologies and tools that will help you: Fully analyse the changes; Identify interdependencies with other key regulations; Assess the impact of the rules on your strategic priorities and operations; Capture the strategic opportunities and minimise any resultant threats; Implement enhanced and compliant processes and procedures; Enhance your business processes, technological systems and infrastructure; and Deliver sustainable change. For more information on the MiFID II please visit: www.pwc.com/mifid 6 PwC
MiFID II contacts Pan-European Ullrich Hartmann +49 17526 50257 ullrich.hartmann@de.pwc.com Wendy Reed +32 2710 7245 wendy.reed@be.pwc.com Folker Trepte +49 89579 05530 folker.trepte@de.pwc.com Austria Christoph Obermair +43 150188 3629 christoph.obermair@at.pwc.com Belgium Jean-François Bourmanne +32 2710 9426 jean-francois.bourmanne@be.pwc.com Marleen Mouton Law Square Geassocieerd-Advocaat +32 2710 4735 marleen.mouton@lawsquare.be Cyprus George Lambrou +35 72255 5728 george.lambrou@cy.pwc.com Maria Athienitou +35 72255 5754 maria.athienitou@cy.pwc.com France Ludivine Gimet +33 15657 7565 ludivine.gimet@fr.pwc.com Marc Ripault + 33 15657 1286 marc.ripault@fr.pwc.com Nicolas Montillot +33 15657 7795 nicolas.montillot@fr.pwc.com Germany Daniel Wildhirt +49 699585 2950 daniel.wildhirt@de.pwc.com Martina Rangol +49 69958 52280 martina.rangol@de.pwc.com Ireland Garvan O Neill + 35 31792 6218 garvan.oneill@ie.pwc.com Fiona Lehane +35 387121 5580 fiona.lehane@ie.pwc.com Italy Fabiano Quadrelli +39 02667 20538 fabiano.quadrelli@it.pwc.com Luxembourg Emmanuelle Henniaux +35 249484 82111 emmanuelle.henniaux@lu.pwc.com Olivier Carré +35 249484 84174 olivier.carre@lu.pwc.com Netherlands Jochen Blaffert +31 88792 1097 jochen.blaffert@nl.pwc.com Jeroen Willemstein +31 88792 7429 jeroen.willemstein@nl.pwc.com Norway Clint Sookermany +47 9526 1278 clint.sookermany@no.pwc.com Portugal Cláudia Parente Goncalves +35 121359 9208 claudia.parente.goncalves@pt.pwc.com Spain Enrique Fernandez Albarracin +34 91568 4504 enrique.fernandez.albarracin@es.pwc.com Sweden Veronica Sommerfeld +46 10 2133737 veronica.sommerfeld@se.pwc.com Switzerland Guenther Dobrauz +41 58792 1497 guenther.dobrauz@ch.pwc.com Christiana Suhr Brunner +41 58792 2566 christiana.suhr.brunner@ch.pwc.com UK Laura Cox +44 20 7212 1579 laura.cox@uk.pwc.com Andrea Wintermantel +44 77 3333 3944 andrea.wintermantel.uk.pwc.com Che S Sidanius +44 7808 035854 che.s.sidanius@uk.pwc.com Simon R Andrews +44 20 7212 3796 simon.r.andrews@uk.pwc.com US Graham O Connell +1 64647 12547 graham.oconnell@us.pwc.com PwC 7
www.pwc.com/mifid This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 2014 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www. pwc.com/structure for further details. 140730-092256-LN-OS